Friday, November 25, 2011

AT&T proposes divestiture to salvage T-Mobile deal

AT&T Inc., with its T-Mobile USA takeover facing regulatory opposition, is preparing the biggest remedy proposal yet to the Justice Department to salvage the $39 billion deal, according to a person familiar with the plan.

The company is considering an offer to divest a significantly larger portion of assets than it had initially expected, said the person, who declined to be identified because the plan isn't public. Though the exact size of the divestiture hasn't been determined, it could be as much as 40 percent of T-Mobile USA's assets, the person said.The divestiture is an attempt to address the concerns of the Justice Department, which sued to block the takeover on Aug. 31, saying the deal would "substantially lessen competition" in the wireless market. The acquisition was dealt another blow Tuesday, with the Federal Communications Commission signaling an attempt to block it."It's going to be problematic for AT&T to find a successful divestiture solution," said Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York. The pool of potential buyers isn't very big and those that might be interested probably wouldn't have a chance, Smithen said. "It's unlikely that the DOJ would allow a big competitor like Verizon to purchase the assets," Smithen said.AT&T fell 0.5 percent to $27.41 at the close in New York. The stock has lost 6.7 percent this year. T-Mobile owner Deutsche Telekom AG added 1.6 percent to 8.83 euros in Frankfurt and has declined 8.6 percent this year.Brad Burns, an AT&T spokesman, and Andreas Fuchs, a Deutsche Telekom spokesman, declined to comment.The asset-sale proposal, which could come as early as the next Justice Department hearing on Wednesday, might be the only remaining option if the second-largest U.S. wireless operator wants to avoid a lengthy court battle in its bid to become the country's top mobile carrier. The purchase may vault it past Verizon Wireless, depending on the size of the divestitures.On Thursday, AT&T and Deutsche Telekom asked to pull their deal applications to the FCC so the companies could better focus on the Justice Department lawsuit. AT&T also said it would take a one-time charge of $4 billion to cover the breakup fee it will need to pay to Deutsche Telekom if the deal fails.One approach is to propose a remedy that would lessen the market impact of losing the fourth-largest wireless service provider. The second approach is to fight the court case, which is scheduled to begin Feb. 13.According to a term in the agreement, AT&T would be able to pay less than the deal's original $39 billion value if regulators demand asset sales that surpass 20 percent of that figure, or about $7.8 billion, three people with direct knowledge of the situation said Sept. 7.AT&T could walk away from the deal and pay Deutsche Telekom a breakup fee if the concessions requested top 40 percent of that value, the people said. If the deal doesn't happen, there's no way AT&T can avoid paying the breakup fee, the people said.